Maintain good credit during college years

Susie and Laura have been inseparable lifelong friends. On the whole, they seemed quite similar. Both excelled academically, pursued a great number of extracurricular activities, and had supportive and involved families. They were also both very excited to be accepted to Top-Notch University (TNU). However, beyond these parallels, their similarities diverged.

When Susie started at TNU, she was thrilled to finally be independent. Susie’s family had been quite frugal, and secretly Susie had nursed, for some time, a sense that she had missed out on life. To make up for her nagging sense of deprivation, Susie began to spend the money from her scholarship, compulsively buying any item that caught her eye.

She also took out credit cards for her favorite high-end stores, like Abercrombie and Ralph Lauren, as it seemed so much easier than using cash; in fact, to Susie, it didn’t seem as if she were spending money at all when she took out the little plastic card. Yet the bills eventually began to pile up and Susie soon found herself unable to make more than the minimum payment each month.

The situation was the same with her cell phone bill, for which she was regularly charged extra for going over her minute limits.

At the end of her freshman year, Susie decided she was tired of the dorms at school. They did not suit her tastes, and she was beyond putting up with her annoying roommates. So, the following summer, she moved off campus into an apartment that cost double her dorm rate. To pay for the apartment, Susie applied for student loan money. With the money, Susie paid for her coveted apartment as well as expensive clothes and trips with friends.

When Susie reflected on her financial choices, she often rationalized, “It will be years before I have to pay all this back; I should have fun now!”
Across the TNU campus, Laura had a different approach. Her family had also been frugal, but she realized these first years of independence were critically important to setting her on a positive path in life. Laura never felt deprived while growing up; she had filled her adolescence with friendship, family and achievement.

So Laura easily walked past the expensive stores, admiring the trends, but shopping at less expensive franchises like Forever 21 and Kohl’s. She did not see the point of spending $200 on a shirt just so that the label would shout, “Ralph Lauren.” She saved money by watching for sales, cutting coupons and redeeming reward points.

Laura did apply for a credit card, but only one, and only so she could start a credit history. She paid the full balance on time every month, as she only bought what she could afford. To make up for her extra expenses, Laura got a part-time job at the student library. She also opened a savings account and deposited a portion of each paycheck.
Laura remained in the dorms through her sophomore year. Her third year, she and three of her friends rented an apartment close to campus. The apartment was not fancy, but it was safe and provided the space they needed. The cost for each girl was about half of what it would have been at the school’s dorms, and they no longer had to endure communal hallway bathrooms!
Ten years later, both Susie and Laura are living lives built from the foundation they set during college. Laura is thriving. She graduated in four years with a modest $30,000 in student loans to pay back. She had followed the maxim of “Always spend less than you make,” and she had very little other debt.

Because of her solid entry-level job and good financial position, Laura had a credit score of 720, and qualified for a low-interest home loan. Laura then embarked on a lengthy search for a condominium and, while tempted to buy a more expensive one, she bought the condo that fit her budget. By keeping her mortgage payment reasonable, Laura had money remaining for furniture, clothes, an annual vacation and even savings for retirement.
Susie, as it would be expected, has quite a different story. It took five years for Susie to graduate, based on a light course-load that allowed plenty of time to have fun. With five years of student loans and growing credit card debt, Susie graduated with $180,000 of debt.

Although she secured a good entry-level job, she could just afford to pay the minimum payment on her school loan with her salary. As a result, Susie also was unable to make full and timely payments on her car, which was ultimately repossessed. Without reliable transportation, she was unable to get to work on time, and eventually was fired from her job.

Susie was caught in a vicious cycle. In the end, she filed bankruptcy and moved back in with her parents to try to restart her life.

While Laura pursued graduate school and career growth without financial stress, Susie’s future was far less bright. Of course, I realize that Susie and Laura are extremes, but, really, are they? The lessons to be learned are far more prevalent than most would acknowledge. Just like my grandfather used to say, “Everything in moderation.”
I believe that even our seemingly insignificant decisions can result in outcomes that have lasting, lifelong consequences. Therefore, I am mindful that the small choices I make in college will grow into larger consequences. This idea is called the Butterfly Effect.

Small financial decisions as a young person can have a profound and lasting effect, good or bad, on establishing and maintaining good credit. One’s credit history is with a person forever. In reflecting on the idea of the Butterfly Effect, I am left with one fundamental core truth: It all begins with me.

— Kasania Khachadourian, an El Macero resident, is a senior at St. Francis High School in Sacramento. She will graduate in May and begin her undergraduate studies at Southern Methodist University in Dallas in August. She intends to major in business with a focus on management, and then go on to graduate studies. She aspires to build a career in the hospitality industry, as it provides opportunities to travel, interact with people from all over the world, learn and give back.

This essay won first place in a statewide financial literacy contest sponsored by the California Association of Collectors.